Mary Kay v. Yahoo! and Mary Kay v. Weber: Can Use of Third-Party Trademarks as Keywords for Ads Be "Fair Use"?
Mary Kay, Inc.'s recently filed trademark infringement suit concerning Yahoo! Shortcuts' is the latest in a series of suits it has brought to defend its distinctive business model from encroachments by unauthorized resellers. (Fn1) In this suit, Mary Kay alleges that Yahoo! Shortcuts creates hyperlinks to websites owned by unauthorized resellers of Mary Kay products in emails sent from Mary Kay salespersons. Yahoo! presents these hyperlinks in popup windows that also include short ads from the resellers. Mary Kay claims that this practice creates confusion among Yahoo! email users as to whether Mary Kay is sponsoring or affiliated with the ads in the popup windows.
Mary Kay is fresh off a victory in a similar trademark suit filed against another reseller in Mary Kay, Inc. v. Weber. (Fn2) However, pre-trial rulings against Mary Kay in that case indicate that Mary Kay has work cut out for it in its suit against Yahoo!
Mary Kay is a Dallas-based cosmetics company that sells its products directly to the consumer through a world-wide network of beauty consultants. While Mary Kay disavows the label, it is commonly understood to operate as a classic multi-level marketing organization. Mary Kay keeps tight controls over its distribution network and only permits its products to be sold by authorized distributors -- termed Independent Beauty Consultants ("Consultants" or "IBCs"). Mary Kay offers a "Satisfaction Guarantee" under which it promises customers that it will replace, exchange or provide a full refund for products if the customer is not fully satisfied.
As with any multi-level marketing organization, Mary Kay has enthusiastic supporters and disappointed detractors. (For a sample of the different points of view, see the Mary Kay-centered blog www.pinklighthouse.com). (Fn3) One problem that Consultants have is disposing of unsold product. Sources indicate that to remain with Mary Kay, Consultants have to purchase $200 worth of product per month. While Mary Kay has a program to buy back unsold product, some reports indicate that this only applies to product purchased within the past 12 months. An unsuccessful sales person who isn't quick to act on this policy can find herself with several thousands of dollars worth of unsold product.
Some Consultants have turned to auction sites like eBay to resell their unreturnable product. There are also reseller sites, which purchase unsold product from Consultants and then resell it to the public. One such site is www.touchofpinkcosmetics.com, which is owned by Amy and Scott Weber. The current version of their website is very forthcoming about their business model and carries the following heading: "This company has been established by former Mary Kay Consultants who are assisting consultants to liquidate their inventory. We offer Mary Kay products at a great discount. Most of our items are discontinued, past shelf life or expired, which is why we can offer you such great prices."
Unfortunately for the Webers, the ghost of Mary Kay founder, Mary Kay Ash, was not amused. In 2008, Mary Kay sued the Webers on Lanham Act and interference with business relations grounds. The Lanham Act claims included unfair competition, passing off and trademark infringement theories. The Webers raised several affirmative defenses, including the first sale doctrine, nominative fair use and laches.
In February 2009, on a motion for summary judgment by the Webers, District Court Judge A. Joe Fish dismissed the interference with business relations claims. However, he permitted the Lanham Act claims to go the jury -- which ultimately found for Mary Kay on all its claims in the case. However, on summary judgment, Judge Fish did find for the Webers on one key element of their "nominative fair use" defense.
"Nominative fair use" is the use of a trademark owned by another to identify the trademark owner's own goods and services. For example, an unauthorized Mercedes repair shop can advertise itself by saying "We repair Mercedes Benz automobiles." Pepsi can use Coca-Cola's trademark to say "Pepsi tastes better than Coke." What these uses have in common is that they use a trademark owned by a "senior" user, but in a way that is not likely to cause confusion. The Fifth Circuit permits this defense if (1) the defendant uses only so much of the senior mark as necessary to identify the product or service, and (2) the defendant does not do anything to suggest affiliation, sponsorship or endorsement by the senior user. (Fn4)
The Webers argued that they only made so much use of the Mark Kay marks as necessary to tell their customers that their products were manufactured by Mary Kay. May Kay countered that the Webers used its mark for more than merely identifying the products they sold. Namely, Mary Kay pointed out that the Webers purchased 79 keywords from Google in order to have their website appear as a "sponsored link" when an individual searched for one of those 79 terms.
Judge Fish rejected this argument, because this would mean that "second hand sellers could not advertise on search engines such as Google without facing liability for trademark infringement." The Court added: "[t]he fair use doctrine allows second hand sellers to inform customers that it sells a mark holder's product so long as its conveys the information "fairly," i.e., in a way that uses no more of the mark than necessary to identify the product and does not suggest affiliation for sponsorship."
The Court concluded that "the Webers' purchase of keyword advertisements from Google, does not, in and of itself, make the fair use defense unavailable." Important factors in this conclusion were the Court's belief (for which it cited no evidence) that users of a search engine would not assume that sponsored link advertisers were affiliated with a trademark entered as a search term, and the Court's belief that "the law will destroy the valuable resource that search engines have become if it prevents those search engines from doing what they are designed to do: present users with information they seek as well as related information the user might find helpful or interesting."
Unfortunately for the Webers, this ruling did not end the day in their favor. The Court then examined the text of the Webers' "Sponsored Links" ad to determine whether it suggested affiliation with or endorsement by Mary Kay. Ultimately, the Court found that the wording of the ad could suggest affiliation with Mary Kay. At trial, the jury found against the Webers on all of their fair use defenses.
There are important similarities between the Weber and Yahoo! suits. Both cases concern the use of keywords to direct advertising of related products to a consumer. Both concern ads by secondary sellers of products manufactured by a trademark holder. In both cases, the advertiser can argue that its use of the Mary Kay mark was necessary in order to identify its products as manufactured by Mary Kay.
However, differences in the ways that the sponsored ads are delivered may make it more difficult for Yahoo! to show that ads don't suggest sponsorship or affiliation by Mary Kay. A user of a search engine may indeed expect to receive "related information", including ads from companies not affiliated with the mark holder, in response to a trademark it has entered as a search term. But, a email recipient may not expect to see any ads as he views an email. (Although, this may be less true for users of "free" email services, such as gmail or yahoo!mail). As such, an email recipient may be more likely to believe that a pop-up ad that appears when he views an email sent from a marketer is affiliated with the sender of that email.
As discussed in previous posts, the use of some else's trademark in internet advertising continues to be fraught with peril. The courts are split on whether the use of third party trademarks constitutes infringement. (Fn5) And, there is a real downside if a court finds that keyword advertising amounts to trademark infringement. In the Weber case, the jury ultimately awarded Mary Kay over $1.1 million in damages. The Webers also face the possibility of an injunction that would shut down their main business.
What is the take away? If you believe that use of a third-party trademark is essential to your internet marketing strategy, be aware of the risks, and make sure that your ad clearly indicates that the trademark holder in no way is associated with or sponsors your ad.
David D. Johnson is a business lawyer whose practice focuses on litigation and other issues relating to digital media and consumer electronics companies. David can be contacted at (310) 785-5371 or DJohnson@jmbm.com.
Notes:
Fn1 Mary Kay, Inc. v. Yahoo!, Inc., U.S.D.C., Northern District of Texas, No. 9:09CV1278.
Fn2 Mary Kay, Inc. v. Weber, U.S.D.C., Northern District of Texas, Case No. 3:08-CV-0776-G.
Fn3 Successful Consultants can earn big rewards, including a distinctive pink Cadillac.
Fn4 See Board of Supervisors for Louisiana State University v. Smack Apparel Co., 550 F.3d 465, 488 (5th Cir. 2008). There is some variance between the Circuits as elements and burden of proof for the nominative fair use defense. See New Kids on the Block v. News America Pub., Inc., 971 F.2d 302, 308 (9th Cir. 1992); Century 21 Real Estate Corp. v. Lendingtree, Inc., 425 F.23d 211 (3rd. Cir. 2005).
Fn5 For a case finding that the use of keywords constituted infringement, see Soilworks, LLC v. Midwest Industrial Supply, Inc., 575 F. Supp.2d 1118 (D. Arizona 2008),
